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The 7 percent, semi-annual coupon bonds offered by House Renovators are callable in 2 years at $1,054. What is the amount of the call premium on a $1,000 par value bond?

User Led
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Final answer:

The call premium for the House Renovators bond is the difference between the callable price and the par value, amounting to $54.

Step-by-step explanation:

The call premium is the additional amount over the par value that an investor receives when a bond is called before maturity. In this case, to find the call premium, we need to calculate the difference between the callable price and the par value of the bond. The par value is $1,000 and the callable price is $1,054.

Therefore, to calculate the call premium:

  • Call premium = Callable price - The par value of the bond
  • Call premium = $1,054 - $1,000
  • Call premium = $54

The amount of the call premium for the House Renovators bond is $54.

User Ermenegildo
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